Firm size, performance and CEO pay: Evidence from a group of American quality companies

The objective of this article is to examine the relationship between CEOs' pay and the stock performance of the Malcolm Baldrige National Quality Award (MBNQA) winning companies. The findings of this study indicate that there is a positive relationship between CEO pay and firm performance for the sample of MBNQA winning firms. The firm-size elasticity is higher for the MBNQA winners than for large American firms reported in previous studies. For the same percentage increase in the firm's sales, the cash compensation paid to the average CEO of the MBNQA winning firms is higher than that paid to the average CEO of large American firms. The salary component of compensation has a weaker link to performance than the bonus component. Bonuses and end-of-year stock option grants are the driving forces behind the pay to performance relationship. There is also some evidence of an operational relative pay component as salary and bonus responds negatively to changes in the market.